As governments and consumers increasingly want to know the carbon footprints of individual products, all actors in the global supply chain are under pressure to measure them, and accurately. But existing voluntary emissions reporting frameworks need to greatly improve the quality of their data and accounting processes, explain Nicole Labutong, Wenjuan Liu and Iris Wu at RMI. Blind spots can lead to meaninglessly inaccurate measurements. It’s far from simple, given the breadth of steps in a supply chain, and the need to measure at the facility and product level. RMI’s Horizon Zero project provides sector-specific guidance. It leverages the progress achieved by other voluntary standard-setters to provide granular emissions accounting methods and primary data requirements tailored to each sector to fill in the existing gaps in accuracy and sector specificity. The authors point at their steel and aluminium Emissions Reporting Guidance. RMI will continue to examine the various regulations at work as companies move from voluntary to regulatory requirements, and how first-mover businesses can gain a competitive advantage.
The corporate landscape has become increasingly climate-conscious in recent years, sparking the development of a plethora of reporting requirements for corporate emissions inventories. Although such efforts are necessary and well-intentioned, a lack of standardisation across reporting requirements has caused fatigue for companies who still struggle to gain visibility about emissions sources tied to the products they buy and sell in their supply chains. In addition, this issue poses the challenge of how to compare emissions across companies or products, thereby preventing companies from identifying key decarbonisation opportunities within their supply chains.
Similarly, the organisations setting detailed criteria or climate metrics for sustainability reporting collect large volumes of data but may still miss some emissions-intensive sources (e.g., methane leaks upstream in the supply chain), and they struggle to keep pace with evolving decarbonisation needs. As these voluntary standard-setters increasingly drive more stringent disclosure rules, there is a growing need for more transparency and visibility into supply chain emissions.
Why sectoral guidance matters for emissions accounting
RMI’s Horizon Zero project is developing sector-specific, product-level emissions reporting guidance to bring more depth and clarity to voluntary greenhouse gas reporting. Horizon Zero enables companies to compare emissions at the level of individual facilities, so they can derive product-level emissions footprints that reflect the actual production profiles at different sites. Such granularity empowers corporations to develop realistic targets, formulate robust reduction plans, and closely monitor progress in line with evolving standards.
This article provides an overview of commonly used voluntary emissions reporting frameworks — and where RMI’s emissions accounting guidance can help corporations close the climate ambition–action gap.
Each sector needs its own calculation rules
Accurately measuring supply chain emissions is a challenging task. Each sector is inherently different due to variations such as supply chain structures, emissions hot spots, production technologies, waste management, and access to cost-effective reduction measures. Therefore, each sector needs its own calculation rules that take those unique characteristics into account.
Think about material emissions for an office building: when using steel for the building’s support beams, emissions calculations often account for the emissions benefits of recycling production wastes (e.g., slag). However, this approach can’t be used for the aluminium in window frames because the waste from making aluminium can be hazardous (e.g., red mud). In addition, each sector also has unique decarbonisation challenges and pathways, requiring different considerations in accounting to drive more effective reduction actions.
These issues aren’t new. Nonprofit climate initiatives such as the GHG Protocol (GHGp), CDP (formerly the Carbon Disclosure Project), and Science Based Targets initiative (SBTi) already have sector-specific accounting and disclosure guidelines. However, some of these are limited in applicability because they either lack necessary details or address only a portion of the supply chain, leaving out emissions-intensive processes like fuel extraction or ore mining. This gap has led to a reliance on sector-led efforts or associations to offer clarity.
Industry associations have been the leading force in developing sectoral emissions accounting methods, since companies in the same sector often share similar challenges, suppliers, customers, and access to emissions-reduction technologies. However, they still grapple with aligning their guidelines with overarching accounting standards. Even with their sector-specific efforts, it is hard to reach sector-wide consensus on certain topics, such as the allocation of renewable energy credits across product profiles or process scrap emissions. This ambiguity can lead to considerable discrepancies in emissions values due to nuanced differences in accounting methods. For example, our rough estimates show that treating emissions of process scrap differently can change the average footprint of a semi-finished aluminium product by about two times. This could mean a difference of around 4 million tons of CO2 equivalent annually for the primary aluminium used in electric vehicles sold in North America.
From Facility-Level data to Product-Level emissions
Facility-level (sometimes referred to as asset-level) emissions data, broken down by process, is vital to ensure accuracy and credibility in product emissions calculations. Such data represents both direct and indirect greenhouse gas emissions from every source within a plant. As a product exits a facility, it embodies the emissions generated there, in addition to emissions from preceding processes. Cumulatively, these emissions constitute the product’s carbon footprint. Although existing sectoral guidance emphasises the use of primary data, either from specific suppliers or the producer’s own facilities, the absence of clear incentives for accurate reporting means companies sometimes default to average emissions factors.
Organisations such as CDP and the Task Force on Climate-Related Financial Disclosures (TCFD) ask companies to disclose facility-level emissions, but it is not always put to good use in improving product-level data. Specifically, these efforts are hampered due to a lack of detailed methods for disclosing facility-level data. These existing frameworks allow for various data types, like sector averages or regional values, without a clear differentiation or incentive, leading to wide variations in calculated emissions, which are not always useful.
Product-level footprints rooted in primary data are critical for establishing a reliable emissions baseline, allowing corporations to make practical climate goals and action plans. For example, our joint case study with SINAI Technologies and ArcelorMittal revealed that when primary data is not available, upstream fugitive methane emissions can change the overall footprint of a steel product by 5.7 to 13.6 percent.
A discrepancy this large can significantly impede a company’s ability to reach its climate goals. Basing an emissions baseline on this data could cause a company to miss potential emissions hot spots in its value chain. Moreover, it may lead the company to inadvertently make inaccurate reduction claims, which are in fact attributed to improved primary data rather than genuine reduction efforts.
RMI’s Horizon Zero: a step forward in sector-based, product-level emissions insights
Horizon Zero complements and builds on the Pathfinder Framework from the World Business Council for Sustainable Development (WBCSD). Whereas Pathfinder has pioneered the move toward more primary data use more broadly, Horizon Zero adds clarity as to how specific sectors can implement the framework. Leveraging the progress achieved by voluntary standard-setters, such as GHGp, CDP, SBTi, and TCFD, Horizon Zero provides granular emissions accounting methods and primary data requirements tailored to each sector to fill in the existing accuracy and sector specificity gaps (see Exhibit 1), empowering businesses to advance their implementation strategies. We address these areas through:
- Fixed reporting boundaries: Horizon Zero sets fixed boundaries in each sector-specific guidance to ensure comparability across products within the same sector.
- Sector-specific accounting: In partnership with WBCSD, we are developing data-centred, sector-specific accounting guidelines for the Pathfinder Framework.
- Incentivisation of primary data: Horizon Zero promotes primary data usage in emissions calculations in order to enhance reporting accuracy and realistic target setting.
Horizon Zero’s sectoral guidance provides clarity on sector-specific accounting challenges to align efforts and accelerate decarbonisation actions. By emphasising product-level footprints backed by primary data, it helps companies unlock insights into their supply chain emissions.
Companies can now seek improved data from steel and aluminium suppliers by adopting Horizon Zero’s Steel Emissions Reporting Guidance and Aluminium Emissions Reporting Guidance, as well as the accompanying steel and aluminium data formats. Upstream producers also can start demonstrating their climate leadership by reporting against Horizon Zero’s sector guidance.
As governments gear up for more stringent climate-related market regulations, the trajectory from voluntary standards toward binding regulations is becoming clearer. In this environment, Horizon Zero’s role in the accounting landscape is to enhance and improve the efforts of existing standards, as demonstrated by our partnership with WBCSD. RMI will continue to examine the various market regulations and demand forces at work as companies move from voluntary to regulatory requirements, while exploring how businesses can gain a competitive advantage as a first mover.
Nicole Labutong is a Principal, Climate Intelligence at RMI
Wenjuan Liu is a Senior Associate, Climate Intelligence at RMI
Iris Wu is an Associate, Climate Intelligence at RMI
This article was first published on RMI.org, and has been reprinted with permission